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<p>[QUOTE=&quot;NorthKorea, post: 2495236, member: 29643&quot;]I know that&#039;s not what you meant. You&#039;re calling for a return to a gold backed standard where the dollar (or whatever currency we&#039;re discussing) is backed by a fixed unit in gold.</p><p><br /></p><p>In the United States (as of July reporting):</p><p>M0 is just north of $3.77T</p><p>M1 is currently about $3.24T.</p><p>M2 is currently about $12.89T.</p><p>Bank balance sheets approximate reporting at $15.99T.</p><p><br /></p><p>If we return to a gold standard, the price of gold would be fixed based upon the M2 value. The US gov&#039;t in all holdings has approximately $291B of gold on hand. In order to have a true reserve backing our currency, we&#039;d need to acknowledge or accomplish one (or a combination) of two things:</p><p><br /></p><p>1) The price of gold <i><b>in the United States</b></i> would be 44.3 times the price of gold anywhere else in the world.</p><p>2) The US would need to purchase $12.7T of gold on the open market. (At current market values, there are about $10T of gold in vaults and unmined in the planet. This includes the $291B of gold the US already has on hand.)</p><p>1+2) The combination of these two scenarios would likely result in the global price of gold being around $27k per ounce (non-troy).</p><p><br /></p><p>These measures wouldn&#039;t account for MB in the calculation.</p><p><br /></p><p>Now, if we chose to operate on M0, instead, that helps (a little), but still causes a very odd sense of inflation, as the price of gold would rise as the US acquired more gold.</p><p><br /></p><p>Anyway, while we settled out that issue, the US currency would essentially only be acceptable for debts within the US. Why? Without the backing of the government, foreign banks would be effectively buying ounces of gold (at a US premium). Rather than doing that, they&#039;d be better served buying gold on the open market or using a different reserve currency.</p><p><br /></p><p>Once the US lost reserve currency status, we&#039;d have to pay off all foreign debts at a premium, since they&#039;d demand to be paid in non-US notes. That&#039;s actually the least of our problems.</p><p><br /></p><p>Imagine, now, if you will, that the US announces tomorrow that every $1500 US would be backed by 1 troy ounce of gold. There would be an immediate run on Reserve banks from anyone with a ton of cash demanding their gold. Why? Because it doesn&#039;t take much to realize that the action of a gold standard will result in 1800-3000% inflation overnight. We&#039;d have the purest version of hyper-inflation possible, since the US would be announcing to the world &quot;We need to buy gold... and we need to buy it at any price.&quot; Since gold takes up little space (all the gold in the world would approximate to a five story apartment complex -- a 20m per side cube), people would have an incentive to hoard. Eventually, physical gold would hold a premium over dollar equivalent, as people would be afraid of the hyper-inflation. The impact of all of this would be companies being unable to order parts manufactured outside the US, and all contracts being drafted in ounces of gold equivalent. There&#039;d be zero incentive to innovate, as the cost of failure would be catastrophic, and the wealth of rewards would be almost negligible.[/QUOTE]</p><p><br /></p>

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